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Tax law. California. 2016. I am a tax preparer... I have a…

tax law Accountant's Assistant:...

tax law

Accountant's Assistant: What state are you in? It matters because laws vary by location.

California

Accountant's Assistant: Has anything been filed or reported?

Yes... 2016

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I am a tax preparer... I have a client that is under audit... he unfortunately paid approximately $200,000 to subcontractors CASH... the IRS is not allowing the deduction... is there a way we can prove it?

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1/2/2018
Barbara
Barbara, Enrolled Agent
Category: Tax
Satisfied Customers: 6,671
Experience: 20+ years of experience in tax preparation; 30+ years of experience as a real estate/corporate paralegal.
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Welcome to Just Answer. My name is ***** ***** I will be happy to assist you.

If your client paid in cash and not by check, these are evidentiary problems but can be solved by applying the case of Cohan v. Commissioner, 39 F.2d 540 (2nd Cir. 1930).

Cohan – which is followed both by the IRS and the U.S. Tax Court – allows you to recreate evidence to prove an expense. In other words, you can have direct evidence of the expense (your check with the notation in the memo portion proving the expense), or indirect evidence (recreating how many contractors the job entailed, how many hours they worked, and what their hourly wage was). Direct evidence is better, but indirect evidence is allowable and permissable.

The following link contains the above information as well as additional information which you will find helpful:

https://howardlevyirslawyer.com/2014/08/03/i-didnt-issue-a-form-1099-to-my-subcontractors-can-i-still-deduct-the-expense/

Please let me know if I can assist you further.

Thank you and best regards,

Barb

Barbara
Barbara, Enrolled Agent
Category: Tax
Satisfied Customers: 6,671
Experience: 20+ years of experience in tax preparation; 30+ years of experience as a real estate/corporate paralegal.
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Customer reply replied 7 months ago
Thank you. I am having trouble, because no 1099 was issued but the auditor already explained how it doesn't matter... and the contractors are willing to provide a notarize letter stating they did received the CASH but the IRS auditor will not accept it. I don't know if he should get a tax law attorney... his tax liability will be over $100,000 if he is not able to prove the Contractors (which is the biggest expense) and other expenses.. :-( ... the audit appointment is this Thursday...
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It was a pleasure speaking with you.

Please let me know if I can assist you in the future.

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Customer reply replied 7 months ago
Thank you for sharing your knowledge with me on this topic. :-)

I'm glad I could help you with this issue.

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